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Comment by dustingetz | Hacker News Reader

Generally i think companies leverage data to ratchet rates upwards, not offer unsolicited discounts. Why invest in infrastructure that will reduce profit? That's why when I drive through an ez-pass-only onramp without an ez-pass, they know exactly where my car entered and exited, but they still charge me the max-fare for not having a ticket.

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There is massive competition in the auto insurance industry. I was about to say that this would imply that profits wouldn't go up because folks would save 10% by switching to GEICO.

However, I realized a problem.

Currently, all insurers are looking at the same demographic data. If this scheme is put into practice, then insurers will have a proprietary information on an individuals' driving habits, letting them offer discounts to good drivers. This leads to a situation where to switch to a different insurer will always cost more for a good driver, so few drivers will switch. This means that trying to switch insurers will become a signal of bad driving, so insurers will charge more to new customers. This leads to fewer and fewer people switching insurance companies, leading to decreased competition.

Unless you have access to your own data. Perhaps the insurance companies could be forced to share it upon user request, for example. Then the new company knows everything the old one did.

Sure, but that would require a change in legislation - one that doesn't seem very likely in America.

This is exactly the goal - these systems are used to ratchet up prices on bad drivers (read them as bad customers), pushing them to other companies.

One solution would be to have laws like Europe has that require companies to provide to each customer all data it's collected about that customer on request Then you could "take your data with you" and show you're a save driver.

Interestingly enough, Geico was started by someone who successfully predicted that government employees would be less risky (the GE stands for Government Employees):

https://en.wikipedia.org/wiki/GEICO#History

In practice, it's the opposite. Switching may be a sign that you are a bad driver but it's also a sign that you are price sensitive which is usually the more important signal. Never switch and you are flagged as price insensitive and therefore a fine candidate for being over-charged.

> Generally i think companies leverage data to ratchet rates upwards, not offer unsolicited discounts. Why invest in infrastructure that will reduce profit?

Because it's a competitive market, and if they don't offer competitive rates, other insurers will take all their market share.

I'm really not seeing how this isn't obvious. If there's a clearly more efficient way of doing insurance rates, companies can either adopt it, or die at the hands of the ones who do.

I agree that insurers will not offer unprovoked discounts. But the accessibility of this data will allow competitors to more accurately estimate accident likelihoods at the individual level, price the insured risks, and undercut the incumbents for a subset of the population.

Unless, of course, the federal government mandates that insurers cover all drivers at the same rates, regardless of pre-existing reckless driving habits.

>Why invest in infrastructure that will reduce profit?

Well ratcheting premiums upward is not the only way to increase profit. Same premiums with reduced number of claims at adds to the profit too.

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